As I sat down to write a blog about saving for college, I quickly realized how daunting the topic can be. The amount of money that a typical four-year degree costs is quickly approaching six figures and for many that seems so overwhelming they don’t know where to start. However, sticking your head in the sand won’t help you get any closer to the finish line, in fact, it just makes things worse. The topic can be daunting not only because of the sheer amount of money but also because of the multitude of questions college saving poses.
I’ve talked to a lot of people over the years about how they think about saving for college for their kids. I think if you talked to 100 people, you’d get 100 different philosophies on how to go about it. To me, that just further proves that this subject is a very personal one. There’s not necessarily a right or wrong way to go about it. Several factors can influence your view on the topic, including whether or not you personally had financial assistance to pay for college, your overall view on taking on debt (or your kids doing the same), whether you have grandparents or others willing to help, as well as financial assistance through grants and scholarships.
If you were given the gift of an education by receiving financial assistance to get through college, perhaps you just want to simply return the favor. And if that wasn’t the case, maybe you want your kids go through college on their own dime because you think that way they’ll truly value the education they receive. Again, an individual case-by-case situation. The only wrong philosophy is not having one. Whether you’re in a position to pay for everything at a top-tier private institution like a Stanford or you can only afford to help pay for a single semester of books at a local community college, you probably have an opinion on the matter.
So for those with kids, it really boils down to 3 things:
Will your kid(s) go to college?
Do you want to help pay for it?
Can you help pay for it?
If the answer to all 3 of these is yes, then keep reading. If not, please read anyway – it’s a short article!
Regardless of your opinion on paying for college, for anyone that wants to help pay for college, there are several questions they’re going to face. First and foremost, how much do you need to save? We’ll get to that in a minute. When is the best time to start? Pretty simple, if you haven’t already started, there’s really no time like the present. And for any new parents, it’s never too early to start, even if it’s just a little bit. You have time for that money to grow (tax-free). What plan(s) are best for me? There are numerous 529 plans available and you’ll want to do a little research to determine what’s best for you. Several states offer state income tax deductions if you use their plan. Again, do some of your own research to determine what’s best for you and your situation.
The rest of this blog is focused on the most important question – how much you need to save. That, of course, depends on several factors, including: how old your kid is, where they end up going to school, how long they’re there, whether or not they’re going to receive any scholarship money, and ultimately what percentage of their education you want to pay for.
As an example, let’s assume you have an 11-year old that will start attending college in the fall of 2023. According to Learning Quest, the tax-advantaged 529 college savings plan administered by the State of Kansas, the cost of four years at a public in-state institution is projected to be ~$102,964 (for public out-of-state, the cost is $179,249, and for private $231,342). That would cover the cost of tuition, fees, books, supplies, room, board, transportation, and other costs – essentially an “all-in” cost. That includes an inflation rate of 3.5% as college costs have increased an average of about 3.5% over the last 10 years. Note scholarships and other financial assistance like grants can definitely help offset the full sticker price, but for purposes of this particular blog, I’m focusing on the list price.
Note: there are numerous websites that will help you estimate the actual cost of college. At a minimum hit the google machine and find what works best for you.
For purposes of this example, let’s assume public in-state and round down to a nice even $100,000. Let’s also assume the goal is to pay for 50% of the cost - so the target is $50K saved for college expenses (in 7 years). Let’s assume you’ve saved $10K so far. Assuming a 5% rate of return on your investments, you’d need to save an incremental ~$313 per month for the next 7 years in order to achieve your goal. While $313 per month might not seem overly daunting, things get significantly more difficult if you don’t start early or they go to school out-of-state or at a private institution. And obviously things get exponentially more difficult with more kids (in more ways than one!).
The point is to figure out your philosophy on college savings early and then develop a plan that puts you in a position to achieve your goal. And the sooner, the better. Sorry, but sticking your head in the sand is not a plan. Either way, having any plan is better than nothing at all. Personally, I’ve found that putting something on paper quickly alleviates stress and brings about more financial peace in my life. I’m hoping that will be the same for you.